APPD Market Report Article
SydneyFebruary 28, 2023
Andrew Quillfeldt, Senior Director - Research, Australia
Retail trade remains elevated in 4Q22
- Retail turnover was stable on an annual basis in October, despite the 12.5% m-o-m increase (ABS). Price inflation and household income growth continued to buoy retail spending in 4Q22, and this is expected to continue until the latter half of 2023.
- Anecdotally, incentives are increasing despite rent levels remaining broadly stable. Demand remains high for F&B tenants. Banks are reducing their physical footprint as well as negotiating shorter leases and lower rent.
Minimal supply additions in 4Q22
- The supply pipeline in 4Q22 was subdued, delivering only 17,000 sqm of construction across four projects. The new supply mix was made up of CBD Prime (12%), Neighbourhood (48%) and Regional (41%).
- The 2023 supply outlook is moderate, with 79,000 sqm scheduled to complete, comprising primarily of new neighbourhood developments.
Rents and yields remain broadly stable
- Gross rents remain stable for all sub-sectors except for CBD. Despite the holiday period, the absence of pre-COVID-19 levels of tourists continues to place pressure on CBD rents, resulting in a rent decrease of 5% in the quarter and 12% over the past year.
- Yields were stable for all sub-sectors. Over the past twelve months, sub-regional and large format retail (LFR) assets showed no yield movement while regional, neighbourhood and CBD assets showed yield softening. Neighbourhood assets experienced the most significant y-o-y change of +27 basis points.
Outlook: Subdued trade turnover and investment performance in 2023
- Elevated retail spending is expected to slow by the middle of 2023 as interest rate increases start to impact spending decisions and consumers deplete savings accumulated from the lockdown period.
- Despite higher debt costs, retail investment is likely to remain resilient as buyers and vendor expectations narrow.